Karnataka High Court
M/S Aar Bee Ispat Udyog vs The Additional Chief Secretary on 31 July, 2025
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 31ST DAY OF JULY, 2025
BEFORE
THE HON'BLE MR. JUSTICE M.NAGAPRASANNA
WRIT PETITION NO. 16594 OF 2025 (T-RES)
BETWEEN:
M/S AAR BEE ISPAT UDYOG
A PROPRIETARY CONCERN
NO. 81, PRATHISHTANA ENCLAVE.
SUNNY LAYOUT MAIN ROAD,
MARAGONDANAHALLI,
BANGALORE 560 036,
(GTIN 29AJZPA9442Q2Z1)
REPRESENTED BY ITS PROPRIETOR
MR. AKBAR ADAM MOHAMMED ALI
S/O LATE K.P.ADAM BASHA
AGED ABOUT 59 YEARS
...PETITIONER
Digitally
signed by (BY SRI. RAJEEV CHANNAPPA NULVI, ADVOCATE)
NAGAVENI
Location: AND:
High Court of
Karnataka
1. THE ADDITIONAL CHIEF SECRETARY
SECRETARY, MINISTRY OF FINANCE,
(DEPARTMENT OF REVENUE)
GOVERNMENT OF KARNATAKA,
VIDHANA SOUDHA,
BANGALORE - 560 001
2. THE ASSISTANT COMMISSIONER OF
CENTRAL TAX, EAST DIVISION-6,
BENGALURU EAST COMMISSIONERATE,
TMC BUILDING, BMTC BUS STAND,
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OLD AIRPORT ROAD, DOMLUR,
BENGALURU 560 071.
...RESPONDENTS
(BY SMT. JYOTI M.MARADI, HCGP FOR R-1;
SRI. ARAVIND V CHAVAN, ADVOCATE FOR R-2)
***
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO
QUASH THE E-MAIL DTD. 27.05.2025 VIDE ANNEXURE-B
ISSUED BY THE R-2 AUTHORITY i.e. THE ASSISTANT
COMMISSIONER OF COMMERCIAL TAX, EAST DIVISION-6,
BENGALURU EAST COMMISSIONERATE (ANNEXURE-B); ISSUE
A WRIT OF CERTIORARI OR A DIRECTION IN THE NATURE OF
WRIT OF CERTIORARI, DECLARING RULE 86A OF THE
KGST/CGST RULES, 2017 AS ULTRA-VIRES, AS BEING
UNREASONABLE, ARBITRARY, BESIDES BEING
DISCRIMINATORY AND VIOLATIVE OF ARTICLE 19(1)(g) AND
300A OF THE CONSTITUTION OF INDIA, ETC.
THIS WRIT PETITION, COMING ON FOR PRELIMINARY
HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE M.NAGAPRASANNA
ORAL ORDER
The petitioner is before this Court, seeking the following
prayers:
“A. Issue a Writ of issue a writ of certiorari or a direction
in the nature of writ of certiorari quashing the E-mail
dated 27.05.2025 vide Annexure-B issued by the
respondent No.2 authority i.e. the Assistant
Commissioner of Commercial Tax, East Division-6,
Bengaluru East Commissionerate (Annexure ‘B’);
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B. Issue a writ of issue a writ of certiorari or a
direction in the nature of writ of certiorari declaring Rule
86A of the KGST/CGST Rules, 2017 as Ultra-Vires, as
being unreasonable, arbitrary, besides being
discriminatory and violative of Article 19(1)(g) and 300A
of the Constitution of India.
C. To pass any such other Writ, Order or Direction as
this Hon’ble Court might deem fit to be issued in the fact
and circumstances of the case in the interest of justice
and equity;
D. To direct the respondents to pay the costs of this
Writ Petition as this Hon’ble Court deems fit.”
2. Learned counsel appearing for the petitioner and
respondents in unison would submit that, a co-ordinate Bench
of this Court, has, in identical circumstance, in Writ Petition
No.12137/2025(T-RES) disposed of on 24.04.2025, laid down
certain guidelines in such cases that is to be followed by the
respondents. The Co-ordinate bench has held as follows:
“3. A perusal of the material on record will
indicate that the Electronic credit ledger of the petitioner
was blocked by the impugned order at Annexure – B
dated 03.09.2024, by invoking Rule 86A of the Central
Goods and Services Tax Rules, 2017 (for short ‘the CGST
Rules’). In this context, learned counsel for the petitioner
invited my attention to the material on record in order to
point out that before passing the impugned order, pre-
decisional hearing was not provided to the petitioner nor
does the impugned order contain any reason to believe
as to why it was necessary to block the Electronic credit
ledger and in view of the aforesaid contravention as held
by the Division Bench of this Court in the case of K-9-
Enterprises Vs. State of Karnataka reported in
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W.A.No.100425/2023 and connected matters, the
impugned order deserves to be quashed.
4. Per contra, learned counsel for respondents
supports the impugned order and submit that there is no
merit in the petition and the same is liable to be
dismissed.
5. In K-9-Enterprises supra, the following points
were answered in favour of the petitioner- assessee by
holding as under:
“8.13 In view of the aforesaid discussion,
we are of the considered opinion that the learned
Single Judge clearly fell in error in coming to the
conclusion that a pre-decisional hearing was not
required to have been provided/granted to the
appellants by the respondents-revenue prior to
passing the impugned orders blocking the ECL of
the appellants and consequently, the said findings
recorded by the learned Single Judge deserve to
be set aside.
9. The next point that arises for
consideration is as to whether the respondents-
revenue were justified in passing the impugned
orders blocking the Electronic Credit Ledgers of the
appellants by invoking Rule 86A of the CGST Rules
which mandates that the respondents-revenue
should have ‘reasons to believe’ that the ITC
available in the ECL was fraudulently availed or
was ineligible as contemplated in the said
provision; in this regard, the learned Single Judge
noticed that 2 pre-requisites/conditions had to be
satisfied/fulfilled before invocation of Rule 86A and
blocking the ECL of the appellants and held as
under:
18. The first requisite of the Rule
which is required to be considered by the
competent authority is with regard to the
basis of material available before he taking
any action for blocking of electronic credit
ledger. The second pre-requisite is of
recording the reasons in writing for invoking
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the powers under Rule 86A of the Rules of
2017. Unless the aforesaid two pre-
requisites are fulfilled, the competent
authority cannot invoke the powers under
Rule 86A of the Rules of 2017 for the
purpose of disallowing the debit of the
determined amount to the electronic credit
ledger or to block the electronic credit ledger
even to the extent of amount fraudulently or
wrongly availed by the petitioners/assessee.
9.1 However, the learned Single Judge came to
the erroneous conclusion that the respondents-revenue
had fulfilled/satisfied the aforesaid twin/dual pre-
requisites/requirements viz., respondents had ‘reasons to
believe’ which were based on cogent material available
with them to invoke Rule 86A of the CGST Rules; in this
context, the learned Single Judge failed to appreciate
that the only ‘reason to believe’ was alleged satisfaction
of certain officers who conducted a field visit in Goa and
noticed that the said suppliers were not in business. It is
well settled that the expression ‘reason to believe’ would
necessarily mean that the respondents must arrive at a
satisfaction based on their own independent inquiry and
not upon borrowed inquiry as has been done in the
instant case.
9.2 The learned Single Judge also failed to
appreciate that Rule 86A was drastic and draconian in
nature warranting existence of “reasons to believe”
before exercising the said power by strictly complying
with all the conditions / requirements of the said
provision; further, an order blocking the ECL by invoking
Rule 86A cannot be passed merely based on
investigation reports and without any application of mind
and that the onus was on the respondents – revenue to
show that the appellants had deliberately availed
fraudulent or ineligible ITC; in the instant case, the ECL
of the appellants had been blocked by the respondents
without verifying the genuineness of the transaction and
a bonafide purchaser cannot be denied ITC on account of
a supplier’s default and the recipient cannot be made to
suffer denial of ITC for the wrong doings of the supplier;
so also, blocking of ECL would defeat the principles and
purpose of value added tax and would lead to a
cascading effect thereby resulting in irreparable injury
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and hardship to the appellants especially when ITC was a
valuable right which cannot be confiscated in a manner
opposed to law.
9.3 The learned Single Judge also failed to
appreciate that the procedure prescribing the
requirements for blocking ECL has been explained by the
respondents themselves in the CBEC Circular dated
02.11.2021, the relevant portions are as under:
3.1.2 Perusal of the rule makes it clear that the
Commissioner, or an officer authorised by him, not below
the rank of Assistant Commissioner, must have “reasons
to believe” that credit of input tax available in the
electronic credit ledger is either ineligible or has been
fraudulently availed by the registered person, before
disallowing the debit of amount from electronic credit
ledger of the said registered person under rule 86A. The
reasons for such belief must be based only on one or
more of the following grounds:
a) The credit is availed by the registered person on the
invoices or debit notes issued by a supplier, who is found
to be non-existent or is found not to be conducting any
business from the place declared in registration.
b) The credit is availed by the registered person on
invoices or debit notes, without actually receiving any
goods or services or both.
c) The credit is availed by the registered person on
invoices or debit notes, the tax in respect of which has
not been paid to the government.
d) The registered person claiming the credit is found to
be non-existent or is found not to be conducting any
business from the place declared in registration.
e) The credit is availed by the registered person without
having any invoice or debit note or any other valid
document for it.
3.1.3 The Commissioner, or an officer authorised by
him, not below the rank of Assistant Commissioner, must
form an opinion for disallowing debit of an amount from
electronic credit ledger in respect of a registered person,
only after proper application of mind considering all the
facts of the case, including the nature of prima facie
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fraudulently availed or ineligible input tax credit and
whether the same is covered under the grounds
mentioned in sub-rule (1) of rule 86A, as discussed in
para 3.1.2 above; the amount of input tax credit
involved; and whether disallowing such debit of
electronic credit ledger of a person is necessary for
restricting him from utilizing/ passing on fraudulently
availed or ineligible input tax credit to protect the
interests of revenue.
3.1.4 It is reiterated that the power of disallowing debit
of amount from electronic credit ledger must not be
exercised in a mechanical manner and careful
examination of all the facts of the case is important to
determine case(s) fit for exercising power under rule
86A.The remedy of disallowing debit of amount from
electronic credit ledger being, by its very nature,
extraordinary, has to be resorted to with utmost
circumspection and with maximum care and caution. It
contemplates an objective determination based on
intelligent care and evaluation as distinguished from a
purely subjective consideration of suspicion. The reasons
are to be on the basis of material evidence available or
gathered in relation to fraudulent availment of input tax
credit or ineligible input tax credit availed as per the
conditions/ grounds under sub-rule (1) of rule 86A.
3.3.1 The amount of fraudulently availed or ineligible
input tax credit availed by the registered person, as per
the grounds mentioned in sub-rule (1) of rule 86A, shall
be prima facie ascertained based on material evidence
available or gathered on record. It is advised that the
powers under rule 86A to disallow debit of the amount
from electronic credit ledger of the registered person
may be exercised by the Commissioner or the officer
authorized by him, as per the monetary limits detailed in
Para 3.2.1 above. The officer should apply his mind as to
whether there are reasons to believe that the input tax
credit availed by the registered person has either been
fraudulently availed or is ineligible, as per conditions/
grounds mentioned in sub-rule (1) of rule 86A and
whether disallowing such debit of electronic credit ledger
of the said person is necessary for restricting him from
utilizing/ passing on fraudulently availed or ineligible
input tax credit to protect the interests of revenue. Such
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“Reasons to believe” shall be duly recorded by the
concerned officer in writing on file, before he proceeds to
disallow debit of amount from electronic credit ledger of
the said person.
9.4 It is clear from the aforesaid CBIC Circular
that the respondents-revenue must form an opinion for
disallowing debit of an amount from electronic credit
ledger in respect of a registered person, only after proper
application of mind considering all the facts of the case,
including the nature of prima facie fraudulently availed or
ineligible input tax credit and whether the same is
covered under the grounds mentioned in Rule 86A(1). As
stated earlier, Rule 86A, which in effect is the power to
block ECL is drastic in nature which creates a disability
for the taxpayer to avail of the credit in ECL for discharge
of his tax liability which he is otherwise entitled to avail
and therefore, all the requirements of Rule 86A would
have to be fully complied with before the power there
under is exercised; when this Rule requires arriving at a
subjective satisfaction which is evident from the use of
words, “must have reasons to believe”, the satisfaction
must be reached on the basis of some objective material
available before the authority and cannot be made on
the flights of ones fancies or whims or caprices.
9.5 In the instant case, the electronic credit
ledgers have been blocked solely on the basis of
communication from another officer [Field visit report by
the Asst. State Tax Officer, Vasco-D-Gama, (Goa)].
There was no tangible material to form any belief that
the ITC lying in the appellants’ ECL was on account of
any fake invoice; it had proceeded to take action solely
on the basis of a direction issued by another authority.
Before the drastic measure to block a taxpayer’s ECL is
taken, it was necessary for the concerned officer to have
some material to form a belief that the conditions under
Rule 86A are satisfied by making an independent
analysis before such action is taken and even this aspect
has not been considered or appreciated by the learned
Single Judge while passing the impugned order, which
deserves to be set aside on this ground also.
9.6 The learned Single Judge also did not
appreciate that the power of disallowing debit of amount
from electronic credit ledger must not be exercised in a
mechanical manner and careful examination of all the
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facts of the case is important to determine case(s) fit for
exercising power under Rule 86A. The remedy of
disallowing debit of amount from electronic credit ledger
being by its very nature extraordinary, has to be
resorted to with utmost circumspection and with
maximum care and caution. It contemplates an objective
determination based on intelligent care and evaluation as
distinguished from a purely subjective consideration of
suspicion. The reasons are to be on the basis of material
evidence available or gathered in relation to fraudulent
availment of input tax credit or ineligible input tax credit
availed as per the conditions/grounds in Rule 86A.
9.7 A perusal of the impugned orders will indicate
that the same have been passed based on the
communication received from other officers, without any
independent application of mind. This shows that
exercise of power under Rule 86A was not because he
was independently satisfied about the need for blocking
the ECL but, was due to the fact that he felt compelled to
obey the command of another officer. This is not the
manner in which the law expects the power under rule
86A to be exercised. When a thing is directed to be done
in a particular manner, it must be done in that manner or
not at all is the well-established principle of
administrative law. On a perusal of the impugned orders,
it is crystal clear that the order to block the ECL
provisionally was out of the borrowed satisfaction of the
respondent authorities rather than based on any
independent analysis.
9.8 As stated supra, the impugned order discloses
that the same has been passed mechanically and is
based on borrowed satisfaction and does not meet the
test of formation of an opinion of the Assessing Officer
who seems to have been influenced by the findings of
the Investigation Wing [i.e, Field visit report by the Asst.
State Tax Officer, Vasco-D-Gama, (Goa)] and have not
independently formed an opinion on the likely additions
to be made during assessment proceedings. In the light
of existence of a legal mandatory pre-requirement and
precondition of recording of formation of opinion which is
in pari-materia with “reasons to believe”, it was
incumbent upon the officer to arrive at his own
satisfaction and not borrowed satisfaction by proper
application of mind; the respondents have proceeded
solely on the basis that the supplier has been found to be
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non-existent or not to be conducting any business from
the place which it has obtained registration, has blocked
the input tax which is impermissible in law without
checking the genuineness or otherwise of the transaction
and consequently, the impugned orders are bald, vague,
cryptic, laconic, unreasoned and non-speaking and
deserve to be set aside.
9.9 While dealing with the provisions of the CGST
Act, this Court in Xiaomi’s case supra, wherein one of
us speaking for the Court held as under:
10. A perusal of the impugned order will indicate
that except for stating that there is likely addition of the
amount mentioned in the order, no reasons, much less
valid or cogent reasons are assigned by the 1st
respondent as to how and why he has formed an opinion
that it was necessary to provisionally attach the fixed
deposits of the petitioner for the purpose of protecting
the interest of the revenue. The requirements and
parameters preceding passing of a provisional
attachment order came up for consideration before the
Apex Court in the case of Radha Krishan Industries’ case
(supra), wherein it was held as under:-
48. On the other hand, when the proper officer is
of the opinion that the amount which has been paid
under sub-section (5) falls short of the amount which is
actually payable, a notice under sub-section (1) is to
issue for the amount which falls short of what is actually
payable. Sub-section (8) contains a stipulation that
where a person who is chargeable with tax under sub-
section (1) pays the tax together with interest and a
penalty of twenty-five per cent of the tax within thirty
days of the issuance of the notice, all proceedings in
respect of the notice shall be deemed to be concluded.
Under sub-section (9), the proper officer after
considering the representation of the person chargeable
to tax is authorised to determine the amount of tax,
interest and penalty due and to issue an order. A period
of five years is stipulated by sub-section (10) for the
issuance of an order in sub-section (9). Sub-section (11)
stipulates that upon service of an order under subsection
(9), all proceedings in respect of the notice shall be
deemed to be concluded upon the person paying the tax
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with interest under Section 50 and a penalty equivalent
to 50 per cent of the tax within thirty days of the
communication of an order. These provisions indicate
how sub-sections (5), (8) and (11) operate at different
stages of the process.
49. Now in this backdrop, it becomes necessary to
emphasise that before the Commissioner can levy a
provisional attachment, there must be a formation of
“the opinion” and that it is necessary “so to do” for the
purpose of protecting the interest of the government
revenue. The power to levy a provisional attachment is
draconian in nature. By the exercise of the power, a
property belonging to the taxable person may be
attached, including a bank account. The attachment is
provisional and the statute has contemplated an
attachment during the pendency of the proceedings
under the stipulated statutory provisions noticed earlier.
An attachment which is contemplated in Section 83 is, in
other words, at a stage which is anterior to the
finalisation of an assessment or the raising of a demand.
Conscious as the legislature was of the draconian nature
of the power and the serious consequences which
emanate from the attachment of any property including a
bank account of the taxable person, it conditioned the
exercise of the power by employing specific statutory
language which conditions the exercise of the power. The
language of the statute indicates first, the necessity of
the formation of opinion by the Commissioner; second,
the formation of opinion before ordering a provisional
attachment; third the existence of opinion that it is
necessary so to do for the purpose of protecting the
interest of the government revenue; fourth, the issuance
of an order in writing for the attachment of any property
of the taxable person; and fifth, the observance by the
Commissioner of the provisions contained in the rules in
regard to the manner of attachment.Each of these
components of the statute are integral to a valid exercise
of power. In other words, when the exercise of the power
is challenged, the validity of its exercise will depend on a
strict and punctilious observance of the statutory
preconditions by the Commissioner. While conditioning
the exercise of the power on the formation of an opinion
by the Commissioner that “for the purpose of protecting
the interest of the government revenue, it is necessary
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so to do”, it is evident that the statute has not left the
formation of opinion to an unguided subjective discretion
of the Commissioner. The formation of the opinion must
bear a proximate and live nexus to the purpose of
protecting the interest of the government revenue.
50. By utilising the expression “it is necessary so
to do” the legislature has evinced an intent that an
attachment is authorised not merely because it is
expedient to do so (or profitable or practicable for the
Revenue to do so) but because it is necessary to do so in
order to protect interest of the government revenue.
Necessity postulates that the interest of the Revenue can
be protected only by a provisional attachment without
which the interest of the Revenue would stand defeated.
Necessity in other words postulates a more stringent
requirement than a mere expediency. A provisional
attachment under Section 83 is contemplated during the
pendency of certain proceedings, meaning thereby that a
final demand or liability is yet to be crystallised. An
anticipatory attachment of this nature must strictly
conform to the requirements, both substantive and
procedural, embodied in the statute and the rules.The
exercise of unguided discretion cannot be permissible
because it will leave citizens and their legitimate
business activities to the peril of arbitrary power. Each of
these ingredients must be strictly applied before a
provisional attachment on the property of an assessee
can be levied. The Commissioner must be alive to the
fact that such provisions are not intended to authorise
Commissioners to make pre-emptive strikes on the
property of the assessee, merely because property is
available for being attached. There must be a valid
formation of the opinion that a provisional attachment is
necessary for the purpose of protecting the interest of
the government revenue.
51. These expressions in regard to both the
purpose and necessity of provisional attachment
implicate the doctrine of proportionality. Proportionality
mandates the existence of a proximate or live link
between the need for the attachment and the purpose
which it is intended to secure. It also postulates the
maintenance of a proportion between the nature and
extent of the attachment and the purpose which is
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sought to be served by ordering it. Moreover, the words
embodied in sub-section (1) of Section 83, as interpreted
above, would leave no manner of doubt that while
ordering a provisional attachment the Commissioner
must in the formation of the opinion act on the basis of
tangible material on the basis of which the formation of
opinion is based in regard to the existence of the
statutory requirement. While dealing with a similar
provision contained in Section 45 [ Section 45 (1)
provides as follows:
“45. Provisional attachment.-(1) Where during
the tendency of any proceedings of assessment or
reassessment of turnover escaping assessment, the
Commissioner is of the opinion that for the purpose of
protecting the interest of the government revenue, it is
necessary so to do, he may by order in writing attach
provisionally any property belonging to the dealer in such
manner as may be prescribed.”] of the Gujarat Value
Added Tax Act, 2003, one of us (Hon’ble M.R. Shah, J.)
speaking for a Division Bench of the Gujarat High Court
in Vishwanath Realtor v. State of Gujarat
[Vishwanath Realtor v. State of Gujarat, 2015 SCC
OnLine Guj 6564] observed : (Vishwanath Realtor case
[Vishwanath Realtor v. State of Gujarat, 2015 SCC
OnLine Guj 6564] , SCC OnLine Guj para 26)“26. Section 45 of the VAT Act confers powers
upon the Commissioner to pass the order of provisional
attachment of any property belonging to the dealer
during the pendency of any proceedings of assessment
or reassessment of turnover escaping assessment.
However, the order of provisional attachment can be
passed by the Commissioner when the Commissioner is
of the opinion that for the purpose of protecting the
interest of the Government Revenue, it is necessary so
to do. Therefore, before passing the order of provisional
attachment, there must be an opinion formed by the
Commissioner that for the purpose of protecting the
interest of the Government Revenue during the pendency
of any proceedings of assessment or reassessment, it is
necessary to attach provisionally any property belonging
to the dealer. However, such satisfaction must be on
some tangible material on objective facts with the
Commissioner. In a given case, on the basis of the past
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conduct of the dealer and on the basis of some reliable
information that the dealer is likely to defeat the claim of
the Revenue in case any order is passed against the
dealer under the VAT Act and/or the dealer is likely to
sale his properties and/or sale and/or dispose of the
properties and in case after the conclusion of the
assessment/reassessment proceedings, if there is any
tax liability, the Revenue may not be in a position to
recover the amount thereafter, in such a case only,
however, on formation of subjective satisfaction/opinion,
the Commissioner may exercise the powers under
Section 45 of the VAT Act.”
72. It is evident from the facts noted above that
the order of provisional attachment was passed before
the proceedings against the appellant were initiated
under Section 74 of the Hpgst Act. Section 83 of the Act
requires that there must be pendency of proceedings
under the relevant provisions mentioned above against
the taxable person whose property is sought to be
attached. We are unable to accept the contention of the
respondent that merely because proceedings were
pending/concluded against another taxable entity, that
is, GM Powertech, the powers of Section 83 could also be
attracted against the appellant. This interpretation would
be an expansion of a draconian power such as that
contained in Section 83, which must necessarily be
interpreted restrictively. Given that there were no
pending proceedings against the appellant, the mere fact
that proceedings under Section 74 had concluded against
GM Powertech, would not satisfy the requirements of
Section 83. Thus, the order of provisional attachment
was ultra vires Section 83 of the Act.
73. On 1-3-2021, the appellant has filed an appeal
under Section 107 together with a deposit of Rs
32,15,488 representing ten per cent of the tax due.
Section 107(6) contains the following stipulation:
“107. (6) No appeal shall be filed under sub-
section (1), unless the appellant has paid-
(a) in full, such part of the amount of tax, interest,
fine, fee and penalty arising from the impugned order, as
is admitted by him; and
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(b) a sum equal to ten per cent of the remaining
amount of tax in dispute arising from the said order, in
relation to which the appeal has been filed.”
Sub-section (7) stipulates that:
“107. (7) Where the appellant has paid the
amount under sub-section (6), the recovery proceedings
for the balance amount shall be deemed to be stayed.”
74. Clause (a) of sub-section (6) provides that no
appeal shall be filed without the payment in full, of such
part of the amount of tax, interest, fine, fee and penalty
arising from the impugned order as is admitted. In
addition, under clause (b), ten per cent of the remaining
amount of tax in dispute arising from the order has to be
paid in relation to which the appeal has been filed. Upon
the payment of the amount under sub-section (6) the
recovery proceedings for the balance are deemed to be
stayed. Thus, in any event, the order of provisional
attachment must cease to subsist. The appellant, having
filed an appeal under Section 107, is required to comply
with the provisions of sub-section (6) of Section 107
while the recovery of the balance is deemed to be stayed
under the provisions of sub-section (7). As observed
hereinabove and under Section 83, the order of
provisional attachment may be passed during the
pendency of any proceedings under Section 62 or Section
63 or Section 64 or Section 67 or Section 73 or Section
74. Therefore, once the final order of assessment is
passed under Section 74 the order of provisional
attachment must cease to subsist. Therefore, after the
final order under Section 74 of the Hpgst Act was passed
on 18-2-2021, the order of provisional attachment must
come to an end.
11. The said judgment which was passed while
dealing with identical provisions under the CGST Act,
2017 and Rules made there under was followed by this
Court in the context of Section 281B of the I.T. Act by
this Court in Indian Minerals Case (supra), wherein it
was held as under:-
“8. As held by the Apex Court in the aforesaid
decision, mere apprehension on the part of the
respondents that huge tax demands are likely to be
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raised on completion of assessment is not sufficient for
the purpose of passing a provisional order of attachment.
It has also been held that apart from the fact that a writ
petition under Article 226 of the Constitution of India
challenging the provisional attachment order was
maintainable, having regard to the fact that the
provisional attachment order of a property of a taxable
person including the bank account of such person is
draconian in nature and the conditions which are
prescribed by the statute for the valid exercise of power
must be strictly fulfilled, the exercise of power for order
of provisional attachment must necessarily be preceded
by formation of an opinion by the authorities that it is
necessary to do so for the purpose of protecting the
interest of Government revenue. Before the order of
provisional attachment, the Commissioner must form an
opinion on the basis of the tangible material available for
attachment that the assessee is not likely to fulfil the
demand payment of tax and it is therefore necessary to
do so for the purpose of protecting the interest of the
Government revenue. In addition to the aforesaid
mandatory requirements, before passing the provisional
attachment order, it is also incumbent upon the
authorities to come to a conclusion based on the tangible
material that without attaching the provisional
attachment, it is not possible in the facts of the given
case to protect the revenue and that the provisional
attachment order is completely warranted for the
purpose of protecting the Government revenue.
9. Applying the principles laid down in Radha
Krishan’s case (supra) to the facts of the instant case, a
perusal of the impugned provisional attachment order
will clearly indicate that except for merely stating that
since there is a likelihood of huge tax payments to be
raised on completion of assessment and that for the
purpose of protecting the revenue, it is necessary to
provisionally attach the fixed deposit of the petitioners,
the other mandatory requirements and pre-condition as
laid down by the Apex Court have neither been complied
with nor fulfilled or followed prior to passing the
impugned order. It is apparent that the impugned
provisional attachment orders at Annexures-D, D1, D2
and D3 do not satisfy the legal requirements as laid
down in Radha Krishan’s case (supra) and consequently,
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in view of the fact that the impugned provisional orders
are cryptic, unreasoned, non-speaking and laconic, the
same deserve to be quashed.
10. Insofar as the apprehension of the
respondents that in the event huge tax payments are to
be raised as against the petitioners – assessee, the
assessee may not make payment of the same causing
loss to the revenue is concerned, in the light of the
undisputed fact that the proceedings under Section 153A
of the said Act of 1961 have already been initiated
coupled with the fact that Section 281 of the said Act of
1961, contemplates that any alienation of any property
belonging to the petitioners would be null and void, in
addition to the specific assertion made by the petitioner
that they own and possess immovable property to the
tune of more than Rs.300 crores, the said apprehension
of the respondents is clearly unfounded and without any
basis and consequently, the said apprehension of the
respondents cannot be accepted”.
12. In the instant case, a perusal of the impugned
order will clearly indicate that the same is arbitrary and
reflects premeditated conclusion without recording either
an opinion or necessary to attach the property; the
doctrine of proportionality which is implicated in the
purpose and necessity of provisional attachment
mandates the existence of a proximate or a live link
between the need for the attachment and the purpose
which it is intended to secure.
13. Further, mere apprehension that huge tax
demands are likely to be raised on completion of
assessment is not sufficient for the purpose of passing a
provisional attachment order and the exercise of the
same must necessarily be preceded by the formation of
an opinion that it was necessary to do so for the purpose
of protecting the interest of Government revenue, that
too on the basis of tangible material that the petitioner
was not likely to fulfil the demand and on the other
hand, was likely to defeat the demand, which is
conspicuously missing and absent in the impugned order.
14. The impugned order also discloses that the
same has been passed mechanically and is based on
borrowed satisfaction and does not meet the test of
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formation of an opinion of the Assessing Officer who
seems to have been influenced by the findings of the
Investigation Wing and TPO and have not independently
formed an opinion on the likely additions to be made
during assessment proceedings.
15. As stated supra, in the light of existence of a
legal mandatory pre-requirement and precondition of
recording of formation of opinion which is in pari materia
with “reasons to believe” in Section 281B of the I.T.Act,
it was incumbent upon the 1st respondent to arrive at his
own satisfaction and not borrowed satisfaction by proper
application of mind and consequently, the impugned
order which is bald, vague, cryptic, laconic, unreasoned
and non-speaking order deserves to be set aside,
particularly having regard the undisputed fact that
except for stating that he was of the opinion that it was
necessary to attach the fixed deposits for the purpose of
protecting the interest of the revenue, no other reasons
have been assigned by the 1st respondent in the
impugned order.
16. A perusal of the impugned order will also
indicate that there is no finding recorded as to why a
provisional order of attachment had to be passed against
the petitioner; it is significant to note that there is no
finding recorded by the 1st respondent that the
petitioner was a ‘fly by night operator’ from whom it was
not possible to recover the likely demand. The impugned
order also does not state that the petitioner was either a
habitual defaulter nor that he was not doing any business
at all or that the petitioner did not have sufficient funds
to satisfy the demand. In other words, in the absence of
any reasons as to why and how the demand would be
defeated by the petitioner, mere apprehension that huge
tax demands are likely to be raised on completion of
assessment was not sufficient to constitute formation of
opinion and existence of proximate and live link for the
purpose and necessity of provisional attachment which
implicate the doctrine of proportionality. Under these
circumstances also, I am of the considered opinion that
the impugned order deserves to be quashed.
9.10 On perusal of the entire material on record,
we are satisfied that the said independent arrival of
opinion that there was a reason to believe is not found
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forthcoming from the order issued blocking the said
credit and it is entirely based on the satisfaction of
another officer; it is quite possible that the transaction,
when entered into in 2017 or 2018 could be genuine and
when the officer visits in 2020 or 2021, the business
could have been closed and therefore the mere closure of
business in 2020 or 2021 cannot be a basis for denying
credit availed earlier. All these factors required that the
respondents-revenue ought to have carefully considered
and verified all aspects before taking such a drastic
action of blocking credit under Rule 86A which is yet
another circumstance that would vitiate the impugned
order.
9.11 The aforesaid facts and circumstances are
sufficient to come to the unmistakable conclusion that in
the absence of valid nor sufficient material which
constituted ‘reasons to believe’ which was available with
respondents, the mandatory requirements/pre-
requisites/ingredients/parameters contained in Rule 86A
had not been fulfilled/satisfied by the respondents-
revenue who were clearly not entitled to place reliance
upon borrowed satisfaction of another officer and pass
the impugned orders illegally and arbitrarily blocking the
ECL of the appellant by invoking Rule 86A which is not
only contrary to law but also the material on record and
consequently, the impugned orders deserve to be
quashed.
Point No.2 is also accordingly answered in favour
of the appellants by holding that the respondents-
revenue committed a grave and serious
error/illegality/infirmity in passing the impugned orders
blocking the Electronic Credit Ledgers of the Appellants
by invoking Rule 86A of the CGST Rules.”
6. In view of the aforesaid dictum of the Division
Bench of this Court, I am of the considered opinion that
in the instant case since no pre-decisional hearing are
provided/granted by the respondents before passing the
impugned order, coupled with the fact that the impugned
order invoking Section 86A blocking of the Electronic
credit ledger of the petition does not contain independent
or cogent reasons to believe/accept by placing reliance
upon reports of enforcement authority which is
impermissible in law, since the same is on borrowed
satisfaction as held by Division Bench, the impugned
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order deserves to be quashed. It is also pertinent to note
that the impugned order except stating that he has been
found non-existent or not to be conducting any business
from any places for which registration has been
obtained, no other reasons are forthcoming in the
impugned order. On this ground also, the impugned
order dated 03.09.2024 deserves to the quashed.
7. In the result, pass the following:
ORDER
(i) The petition is hereby allowed.
(ii) Impugned order dated 03.09.2024 at
Annexure – B is hereby quashed.
(iii) The concerned respondents are directed to
unblock the Electronic credit ledger of the petitioner
immediately upon the receipt of copy of this order, so as
to enable the petitioner to file returns forthwith.
(iv) Liberty is reserved in favour of the
respondents to proceed against the petitioner in
accordance with law and in terms of the judgment of
Division Bench in K-9-Enterprises Vs. State of
Karnataka reported in W.A.No.100425/2023 and
connected matters.
(v) The petitioner is directed to appear before
respondent No.2 on 05.05.2025 without awaiting further
notice from respondent No.2.
(vi) Liberty is reserved in favour of respondent
No.2 to issue fresh notice to the petitioner by hand in
person and to proceed further in accordance with law.
(vii) In the event, respondent No.2 issues a fresh
notice to the petitioner on 05.05.2025 or subsequently
liberty is reserved in favour of petitioner to submit
requisite documents etc., to the said notice and contest
the same in accordance with the law.
(viii) It is further made clear that in the event
petitioner does not appear before respondent No.2 on
05.05.2025, the present order shall stand automatically
recalled/cancelled and the present petition shall stand
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revived/ restored without further orders and without
reference to the Bench.”
3. In the light of the issue already standing answered by
a co-ordinate bench of this Court, the petition deserves to
succeed.
4. Learned counsel appearing for the petitioner submits
that the difference between the order passed by a Co-ordinate
bench and this, is that before the co-ordinate bench, a show
cause notice was issued and in the subject petition, there is not
even a show cause notice issued. Nonetheless, the order would
enure to the benefit of the petitioner and all the directions that
are issued would become applicable to the case of the
petitioner as well.
5. In the light of the order passed by a co-ordinate bench
this Court (supra) and for the reasons aforementioned, the
following:
ORDER
(i) The petition is hereby allowed.
(ii) Impugned E-mail dated 27.05.2025 at
Annexure – B, issued by respondent No.2 – The
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Assistant Commissioner of Central Tax, East
Division-6, is hereby quashed.
(iii) The concerned respondents are directed
to unblock the Electronic credit ledger of the
petitioner immediately upon the receipt of copy of
this order, so as to enable the petitioner to file
returns forthwith.
(iv) Liberty is reserved in favour of the
respondents to proceed against the petitioner in
accordance with law and in terms of the judgment
of Division Bench in K-9-Enterprises Vs. State of
Karnataka reported in W.A.No.100425/2023
and connected matters.
(v) The petitioner is directed to appear
before respondent No.2 on 11.08.2025 without
awaiting further notice from respondent No.2.
(vi) Liberty is reserved in favour of
respondent No.2 to issue fresh notice to the
petitioner by hand in person and to proceed further
in accordance with law.
(vii) In the event, respondent No.2 issues a
fresh notice to the petitioner on 11.08.2025 or
subsequently, liberty is reserved in favour of
petitioner to submit requisite documents etc., to the
said notice and contest the same in accordance with
the law.
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(viii) It is further made clear that in the event
petitioner does not appear before respondent No.2
on 11.08.2025, the present order shall stand
automatically recalled/cancelled and the present
petition shall stand revived/ restored without further
orders and without reference to the Bench.
Sd/-
(M.NAGAPRASANNA)
JUDGE
BMV*
List No.: 1 Sl No.: 36